Inheritance Tax Planning

• Explain what reliefs and exemptions are available to you and how to access these.
• Warn you of the many traps contained in the tax legislation
• Help you to organise your affairs in a tax efficient manner
• Advise on a tax efficient structure for your Will
• When appropriate refer you to third party investment advisers or liaise with your own advisers over the implementation of advice.
• Advise and assist in the preparation and implementation of Trusts when these are considered beneficial.

1. Life Policies / Pensions / Death in Service Benefits – Take time to review your policies and options as there is potential to pass them to beneficiaries outside of your estate.
2. Use allowances if you have excess funds – You do have individual allowances available to make gifts before Inheritance Tax is payable.
3. Consider Charitable Gifts – In your lifetime or in your Will – In certain circumstances, where a portion of your estate is left to charity you can qualify for a reduced rate of Inheritance Tax.
4. Take regular advice from a STEP qualified advisor – We always recommend our clients review their Wills every 5 years or whenever there is a significant life event; marriage, divorce, having children, a house purchase or anything similar.
5. Understand NRB (Nil Rate Band), TNRB (Transferable Nil Rate Band) and RNRB (Residence Nil Rate Band) Understand your allowances for inheritance tax and the different levels of Nil Rate Band.
6. Communication – With your family, executors and beneficiaries – It is important to be open with your family and your intentions with your estate if you wish. This can help with family planning for wealth.
7. Make a Will – Don’t put it off! Plan for the future and have peace of mind.
8. Don’t be scared of Trusts – Trusts can really be your friend when it comes to planning during your lifetime or in your Will. Some forms of Trust really are very simple and low maintenance and can fit your wishes to benefit your loved ones.
9. Make gifts from excess income – If you have an excess left, after your receive your income, and have plenty of provision some gifts made from excess income are exempt from Inheritance Tax. Take advice and keep records.
10. Last of all … spend it !

Wills
One major way in which you can plan for your future is through your Will. You may not have a Will, it might be out of date or fail to take advantage of tax planning.

If you are married or in a civil partnership, you are able to leave your entire estate to your spouse tax free. On the death of the second spouse, their estate will be able to claim their spouse’s unused nil rate band allowances, meaning they could potentially give away up to £1m tax free.

Furthermore, if you intend to leave a certain amount of your estate to charity, your estate could benefit from a lower rate of IHT (36%).

Trusts
Trusts can be set up either in your lifetime or by your Will.

Trusts can have the benefit of taking the value of the assets that you put into the trust out of your estate, whilst enabling you to maintain some control over the assets.

Other tax charges may be incurred so advice should be sought before entering into any trust arrangements.

Gifts
If you have amassed a large amount of savings during your lifetime, you may come to a point where you have more capital than you reasonably need. In order to reduce the value of your estate when you die, you can take advantage of a number of exemptions relating to gifting.

Each tax year, you are able to give away £3,000 free of tax without having to survive this gift by any length of time. You can carry forward a maximum of one year’s allowance if this has not already been used. These gifts should come from savings, rather than income.

You can make larger gifts (over £3,000), but for these to be left out of your estate when you die, you will need to survive by 7 years from the date of the gift. If you were to die within the 7 years, the exemption may be tapered depending on how long you survived by.

Smaller gifts of £250 can be made to as many different individuals as you wish per tax year. These gifts cannot be made to the same person who received the £3,000.

If a child or grandchild is getting married, you are able to make a tax free gift of £5,000 or £2,500 respectively. For any other person, if you are feeling generous, it is £1,000.

Gifts to charities and political parties are exempt for IHT.

You may be receiving multiple pensions, or be earning a decent wage and have excess income. If your income exceeds your outgoings, you are able to make regular gifts out of income free of tax. After your death, your executors will need to show that the gifts qualify for this exemption. Keeping proper records is therefore vital if your executors are to successfully claim this exemption.

Reliefs
If there are certain types of asset in your estate, relief may apply to reduce the amount of IHT payable on those assets, sometimes to nil.

Business owners, farm owners or those with agricultural land may benefit from relief from IHT if certain conditions are met.

You can also consider investing in certain types of companies or assets which attract tax relief in order to reduce your IHT liability.

Gifts with reservation of benefit
Something we are frequently asked is if you can hand over your house to your children now to avoid paying care fees and reduce the value of your estate.

Unfortunately this will not work for IHT purposes. If you continue to live in the house after you have transferred it to someone else, this will be a “gift with reservation of benefit” and will be included in valuing your estate for IHT purposes on your death.

There are certain ways in which you may be able to transfer your property in order to reduce your IHT liability and our Private Client team can advise you on this.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.

There is no time like the present and when Inheritance Tax (IHT) can run into hundreds of thousands of pounds when you die, it is better to plan ahead. By undertaking tax planning in your lifetime, you could potentially significantly reduce the amount of IHT payable on your death and in some cases could pay no IHT at all.